Things looking up, says Stephen Hester but no plans for RBS sale yet

By TERRY MURDEN
Published on 03/08/2012 10:12

ROYAL Bank of Scotland boss Stephen Hester hailed its progress on Friday from the dark days of the financial crisis but said there were no imminent plans for the government to sell its stake.

Hester said the bank was continuing to strengthen its balance sheet and was removing the “mistakes of the past”.

But the group’s recovery was aligned to that of the economy which was showing flat growth. “Banks are as healthy as their customers. When their customers do well we do well and vice versa,” he said.

“RBS is positioned to ride unforeseen events if they come along. We hope they don’t.”

The bank was reducing its debt exposure, strengthening its capital position and improving profitability, he said.

But there were no signs of the UK government offloading its 82 per cent stake despite reports of talks between the Treasury and Middle Eastern investors. “As far as I am aware there is no desire to sell at the current price. There is nothing imminent on that front,” he added.

By the end of next week it will have repaid the £75 billion in loans it took from the UK government at the height of the financial crisis with a final £5.7bn instalment. It also received support from the Bank of England and US Federal Reserve. Some lenders were not prepared to go public on the sums involved, Hester said. However, it is believed the full £163bn in loans will be repaid. The taxpayers’ holding in the bank is unaffected.

RBS reported a first-quarter operating profit of £1.2bn against a £144 million loss in the previous three months and £1.1bn profit in the same quarter last year. But losses before tax rocketed from £116m last year to £1.4bn because of a £2.4bn provision for credit adjustments, a measure of the bank’s ability to repay its debt. This rises as the bank’s prospects to pay off loans improve.

Hester said the bank would begin paying dividends on certain classes of shares but would not consider a payout to ordinary investors for at least a year.

Impairment losses of £1.3bn were down 33 per cent on last year and the loan-to-deposit ratio improved from 116 per cent to 106 per cent year-on-year. The tier 1 capital ratio, a measure of group reserves, now stands at 10.8 per cent.

UK retail operating profits were up 4 per cent at £477m, but Ulster Bank still faces “exceedingly difficult” market conditions and recorded operating losses of £310m, driven by bad debts.

The investment banking arm, which was subject to a huge restructuring in January, involving job losses and closures, rebounded amid improved market conditions in the first quarter.

Insurance division Direct Line Group recorded a 25 per cent increase in operating profits to £84m as progress continued in hiving off the business through a flotation. Hester said there had been no talks with potential buyers.

The bank paid out £14.3bn of gross new loans and facilities to UK businesses during the first quarter, including £7.9bn to small firms – up 18 per cent on last year.

RBS also increased its compensation for covering payment protection insurance complaints by £125m, to reflect an increase in claims received, bringing the cumulative charge taken to £1.2bn.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “In all, life support is being removed, with the bank’s near failure now being consigned to another chapter in its history.”

The full results are available at www.investors.rbs.com/download/announcements/Interim_Results_2012.pdf